South Korea is preparing to implement its first fuel price cap in nearly three decades as escalating conflict in the Middle East pushes global oil prices toward $120 per barrel. The move, directed by President Lee Jae Myung during an emergency economic meeting, aims to curb domestic energy costs amid significant supply risks.
The government's plan involves setting a maximum price for fuel, which could be adjusted every two weeks to reflect global crude price movements. Industry Minister Kim Jung-kwan stated that preparations for the policy are nearly complete, and authorities will implement it swiftly if prices continue to rise. The government has also warned fuel companies against taking advantage of the global price surge, threatening accountability for unfair price hikes.
The primary supply risk stems from the Strait of Hormuz, a narrow waterway through which about 70% of South Korea's crude oil imports, or roughly 1.7 million barrels per day, normally pass. With tanker traffic through the strait nearly halted due to the conflict, global markets have tightened, causing oil prices to reach levels not seen since 2022. Domestically, the average retail gasoline price in South Korea had already risen to 1,895.32 won per liter, a 12% increase from late February.
In response, Seoul plans to leverage its strategic petroleum reserves, which hold about 100 million barrels—enough to cover over 210 days of consumption. The government is also seeking to diversify imports, including crude cargoes from the United Arab Emirates that avoid the Strait of Hormuz, and may access an additional 20 million barrels from joint storage arrangements with oil-producing countries.
Parallel developments in the United States underscore the global nature of the energy shock. U.S. gas prices jumped nearly 17% in a week to a national average of $3.48 per gallon, with analysts giving an 80% chance of reaching $4 per gallon within a month. Diesel prices surged even faster to $4.66 per gallon, with an 85% probability of hitting $5 nationally. The spike is raising stagflation concerns on Wall Street, as higher transport costs threaten to push up prices for a wide range of consumer goods.
